Refinance Forestry Equipment To Reduce Payments

What is refinancing forestry equipment?

Refinancing forestry equipment (or logging machinery) is the process of obtaining new financing for existing forestry equipment. This can be done by taking out a new loan on the equipment and using the existing machinery as collateral.

By refinancing (also known as Sale and HP Back), you pay off the existing lender agreement and set up a new finance agreement. A specialist forestry asset finance broker such as Evangate FS can help you do this.

Benefits Of Refinancing Forestry Machinery

Refinancing forestry equipment can be a way for businesses to obtain more favourable financing terms, such as lower interest rates or reduced monthly payments – reducing payments is one of the most common reasons.

Lenders can offer new arrangements which spread the total value over a longer time; some will even reduce payments to align with the quiet periods (such as during December & January) of the forestry industry cycle.

Another benefit of refinancing logging or forestry machinery is that you may be able to receive a cash lump sum upfront. You can then use this to reinvest in other equipment or other areas of your business.

Refinancing can help improve cash flow and lower overall costs when business is slow and times are tough.

In summary, refinancing your equipment can:

• Lower monthly payments
• Reduce interest rates
• Improve cash flow
• Increase equipment value

Types Of Refinancing Options

Hire Purchase

Using hire purchase (HP) as a refinancing option allows businesses to obtain new finance arrangements for existing forestry equipment by taking out a new HP loan on the equipment – using the existing equipment as collateral.

The business continues to operate the equipment, making regular payments on the loan until it is entirely paid off. Loan terms usually last between 12 – 60 months. At the end of the loan term, and assuming the terms of the agreement have been met, the business will own the equipment outright.

Finance Lease

A finance lease is another option if you want to relinquish equipment ownership. By selling the item to a lender, they will settle the outstanding amount and take full ownership.

The lender will then agree to lease (similar to a rental arrangement) the equipment back to you under the terms and conditions of the agreement.

Your business can continue to use the machinery for the duration of the lease. However, at the end of the term, you will not own the machine – so you will have to look to extend the lease or hand it back (or potentially buy it from the lender).

Refinancing Machinery Example

To explain how refinancing works, consider the following hypothetical scenario.

James runs an arborist company and owns several pieces of equipment; one particular piece is a John Deere 1510G forwarder, now worth £180,000 (second-hand).

He initially bought this using an HP agreement on a 5-year term but still has £40,000 to pay. With the timber industry slowing down due to the Larch tree disease in the UK – he struggles to make his current monthly payments.

He spoke with a finance broker who suggested he could refinance the forwarder to extend his payment terms and reduce his monthly payments. As James has £140,000 in equity (£180k – £40k) in the machine, signing a new agreement for another five years will be possible.

The new lender pays the outstanding £40,000 to the old lender and takes control of the forwarder as collateral. James now pays the new lender at the agreed rates.

This instantly reduces his monthly payments to a more acceptable level – and he can continue to use the John Deere forwarder, even during the refinancing process, which takes some pressure off him.

Tips For Successful Refinancing

Here are five tips for refinancing your forestry machinery:

1. Check your credit score: Having a good credit score will help you get the best possible interest rates when refinancing. Review your credit report and focus on improving your score if needed.
2. Shop around for the best interest rate: Refinancing your equipment can save you money by lowering your interest rate. Research different lenders and compare their interest rates and terms to find the best option.
3. Consider the loan length: The loan length will affect your monthly payments and the total amount of interest you pay over the life of the loan. A more extended loan period may mean lower monthly payments, while a shorter loan term may mean higher monthly payments, but you’ll pay less in interest over the total loan term.
4. Look for prepayment penalties: Prepayment penalties can limit flexibility and make it more difficult to refinance or pay off your loan early. Look for options that don’t incur penalties; that way, you can pay off your loan as quickly as you want without incurring additional fees.
5. Consider a specialist broker: A broker can help you navigate the refinancing process and find the best loan for you. They will have relationships with multiple lenders and can compare rates to find the best deal. They can also help you prepare the financial documents and the application process.

How To Refinance Logging Equipment

The first thing to do is to speak with a finance broker. They often have access to finance deals unavailable on mainstream websites or financial institutes such as banks.

Using a broker will make your life much easier, as they do the heavy lifting and deal with the paperwork.

Here’s how it works:

1. You identify the forestry equipment you want to refinance and determine the amount of financing needed
2. Contact a broker to discuss your needs
3. They will check which lenders are most suitable for you and who can offer the best deal
4. The lender will then evaluate the equipment and determine its value
5. The lender and you agree on a repayment schedule, which includes the amount of the loan, the interest rate, and the length of the arrangement term
6. You sign a refinance agreement, which outlines loan terms and the responsibilities of your business
7. The lender provides your business with the funds to pay off the previous agreement, and you begin making regular payments towards the new agreement
8. You continue to use the equipment, making payments until the loan is paid off

Forestry Machinery Refinance Terms & Rates

Evangate FS has been helping forestry operators and arborists secure great refinancing deals for 15 years. They can access over 150 lenders, so finding better rates and more favourable terms is often straightforward.

The Evangate team know the forestry world inside out and caters for all types of equipment, including:

If you are looking to refinance any type of logging machinery, don’t hesitate to get in touch with us today.